ShipRecycling Pages:

16 September 2015

Waning demand for commodities sends cargo ships to scrapyard

As China’s slump deepens, it’s off to the scrapyard for a growing number
of global cargo ships.

A drop in shipping rates amid the collapse in demand for coal, ore and
other commodities has sparked a sharp rise in the number of ships yanked from
the service and sold for scrap. Almost 6 per cent of the world’s fleet of ships
that carry bulk commodities will be beached and sliced up for scrap metal this
year, up from 2 per cent last year and topping the recent high of 2012’s 4.3
per cent, according to Clarksons PLC, a London-based ship broker.

“Business is good,” said Yogesh Rehani, director of operations at Global
Marketing Systems Inc. (GMS), a buyer and recycler of ships. “The bulkers are a
constant supply.” A closely watched measure of bulk shipping rates, the Baltic
Dry Index, has fallen 21 per cent in the past 12 months, but is above a 30-year
low touched in February. Prices for iron ore and Chinese imported coking coal
have fallen 19 per cent and 50 per cent, respectively, in the past 12 months as
factories in the world’s second-biggest economy slow down amid falling demand.

Demand for iron ore and coal is not expected to recover until 2017,
London-based Drewry Shipping Consultants Ltd. says. “The depressed state of the
dry bulk sector has led to doubts about the future of many ship owners and
their ability to withstand prevailing market conditions,” Drewry said in a
report on Wednesday.

Shipping companies that are taking deliveries of new vessels purchased
many months ago in expectations that Chinese demand for raw materials would
remain strong are now getting rid of their older freighters and downsizing
their fleets. Scrapping ships gives companies cash, cuts expenses and helps
support shipping rates by reducing the available global fleet.

“All the older vessels are not going out so because the rates are so poor
it doesn’t make sense to run them,” Mr. Stavseth said in an interview from
Oslo.

The net fleet size of dry bulk carriers is expected to grow by 2.5 per
cent this year, compared with 2.2 per cent in 2014 and 3.3 per cent in 2013.

GMS’s Mr. Rehani would not say how many ships the company has bought and
sold for scrap this year, but said the company has never been busier. Industry
figures show about 100 of the largest bulk carriers, known as capesize, are
expected to be scrapped in 2015, the highest since 2012’s record.

GMS sends ships for recycling at breaking yards in five countries,
including Pakistan, China and Bangladesh.

A bulk carrier, which can weigh 35,000 tonnes empty and stretch longer
than four hockey rinks, has scrap value of as much as $12-million (U.S.), based
on recycled steel prices of $310 to $330 a tonne. GMS takes 3 per cent of that
sale, a margin Mr. Rehani said has been falling in recent years amid stiff
competition.

“It’s a very high-risk and low-return business,” Mr. Rehani said. “Most
of the time the ships are operating and they are run up to the beach. If they
are dead ships, then they are towed and pushed up on to the beach.”

Once beached, the vessel is set upon by workers armed with torches and
cranes.

Much of steel is sold locally and turned into reinforcement bars used in
construction, while the power generators are sold to hotels or companies in
remote areas for back-up electricity, said Mr. Rehani, a former freighter
captain. It can take as long as four months to cut up a ship. “All of the
stuff, the wood, the machinery, the ceramics, is put back into service.”

The type of ship GMS sells for scrap is a handy barometer of the state of
the global economy. In 2013, the company saw a flood of container ships as
Chinese consumer demand faltered. This year, Mr. Rehani said the company has
also seen a lot of petroleum tankers, after crude prices plunged by 50 per cent
a year ago.